1. Title  --  A title search by a competent legal firm customarily reveals any historic defects in the property.  However, two issues deserve special scrutiny.  First, recent debt obligations against the property require examination for clean settlement with respect to potential third party interests.   Second, property easements (a third party right to do something on the property) should be clarified for precise definition, particularly easements "in gross" for public utility companies.
2. Environmental Contamination -- is an issue of increasing interest that may not appear on the property legal description if the cause originates on a nearby property.  It requires a diligent neighborhood inspection in addition to legal examination.  In building acquisitions, it is essential to conduct a survey for structural defects and/or warning signs.

3. Revenues -- All acquisitions must be examined in terms of the location, durability and future competitiveness of the property.  The due diligence must examine the current and future corporate strength of any tenant and current lease(s), as well as future competitiveness of the property.  Once again, the physical environs of the site may prove critical in assessing impact upon future uses of the site.
4. Expenses -- The historical record (3-5 years) of property expenses, leases and tax returns, is essential to understand profit potential of the property.  It must include adequate insurance coverage and property tax potential in escalating local government revenue duress – analyses that are of particular relevance to investment properties.
5. Loan Encumbrance -- In the case of property encumbered by debt, it is essential to examine the loan documents for terms that can adversely affect intended uses as well as repayment provisions, including prepayment penalties.
6. Neighborhood and Market Analysis -- The neighborhood environs are a key factor to all property performance:  population trends, household size, income and age of residents, area employment, and traffic patterns all contribute to product/services supply and demand.  If a new use is planned, such as commercial and/or residential development, comparable prices in the market must be summarized as a basis for estimating future revenues.  This process has become particularly difficult as a result of foreclosures and erratic price discounting generated by The Great Recession.  Standard methods of comparison shopping are no longer valid in establishing acceptable pricing criteria.  They must be modified by more sophisticated valuation techniques that include on-site inspections and consumer intelligence to establish viable product pricing policies over the project sellout period.

Parker Associates understands the New Due Diligence requirements and how to fulfill them in efficient fashion.  Our 27 years of experience in performing cost-effective real estate analysis during good times and bad times has equipped us to achieve intelligent solutions at all times.  We are ready to begin work for you on short notice.  Phone or email us for fees and availability.

DFP – March 2010